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Portugal’s central bank lifts 2022 GDP forecast, warns of 2023 slowdown

Published by Wanda Rich

Posted on October 6, 2022

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LISBON (Reuters) -Portugal’s central bank on Thursday raised its 2022 economic growth forecast to 6.7% from a previously projected 6.3%, citing a stronger recovery in the crucial tourism industry and higher private consumption, but signalled a slowdown in 2023.

In its quarterly Economic Bulletin, the central bank said activity rebounded to pre-pandemic levels in the first quarter of this year before slowing, warning that the economy’s short-term prospects have “deteriorated” following Russia’s invasion of Ukraine.

“The impact of the adverse shocks that occurred throughout the year will be more visible in 2023, anticipating a significant deceleration of economic activity compared to 2022,” it said.

Inflation running at three-decade highs and macroeconomic uncertainties are putting the brakes on European economies, leading countries to lower their economic forecasts for next year.

Portuguese 12-month inflation stood at 9.3% in September, and the central bank raised its forecast for the 2022 EU-harmonised inflation rate to 7.8%, from 5.9% previously, citing price pressures from imported energy and food.

So far, the negative impacts of rising inflation and higher interest rates were partly mitigated by the good performance of the labour market, the savings accumulated during the pandemic and the government’s measures to support the economy, the bank said.

“Portugal will grow less than it did this year, but the country will not have any scenario of non-growth and even less of recession,” said Prime Minister Antonio Costa, who is preparing the 2023 state budget.

The economy grew 4.9% in 2021, when it bounced back from an 8.4% pandemic-induced contraction which was the worst annual decline since 1936.

The central bank said accelerating reforms under the European recovery plan was a matter of urgency, so that funds could be used effectively and efficiently to sustain growth in the short and medium term.

(Reporting by Sergio Goncalves and Inti LandauroEditing by David Goodman, Kirsten Donovan)